improvement of business environment

8/2/2019 Improvement of Business Environment

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Improvement of Business Environment,

Innovation and Information Society

Report


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Overview

This report covers three topics that are important in the modern world of business. Business

environment includes everything related to starting, running and closing a business in

compliance with current rules and policies. Improving business environment means making it

easier to perform these tasks.

Innovation and new technologies add value to produced products and services and make

businesses more successful, comparing to others, that use common or outdated methods and

produce average to low added value goods.

Information society is a social development model, based on information technologies and

peoples ability to use them efficiently for development, business and everyday life.

This report analyzes the state of business environment, innovation and information society in

Latvia, gives timeline details, notes relevant events, compares the state with the other countries

(Baltic, EU and global).


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Business Environment

The process of starting and running a business can turn out to be a challenge, as it is necessary to

follow all necessary rules and steps, defined by the country. Small and medium businesses are

vital for the Latvian economy, but their size makes them very sensitive the changes in industry

and environment they operate. So it is necessary to create a favorable business environment in

order for Latvia to be an advantageous place to invest and work.

The most common tool for evaluating the Business Environment is the international survey of

the World BankDoing Business. Latvia has been ranked at 21th place out of 183 evaluated

counties by Doing Business report 2012. It is 10 places higher than year before (31th place in

2011). The rankings for 2012 report are benchmarked to June 2011 and are the average of 10

topics included in current year evaluation.

Table 1. Latvia Business Environment rankings on different topics

Topic Rankings DB 2012 Rank DB 2011 Rank Change in Rank

Starting a Business 51 52 1

Dealing with Construction Permits 112 103 -9

Getting Electricity 84 115 31

Registering Property 32 56 24

Getting Credit 4 4 No change

Protecting Investors 65 60 -5

Paying Taxes 67 64 -3

Trading Across Borders 15 15 No change

Enforcing Contracts 17 14 -3

Resolving Insolvency 32 86 54

Figure 1. Latvia ranking in 10 evaluated topics
http://www.doingbusiness.org/data/exploreeconomies/latvia/#starting-a-businesshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#dealing-with-construction-permitshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#dealing-with-construction-permitshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#getting-electricityhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#registering-propertyhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#getting-credithttp://www.doingbusiness.org/data/exploreeconomies/latvia/#protecting-investorshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#paying-taxeshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#trading-across-bordershttp://www.doingbusiness.org/data/exploreeconomies/latvia/#enforcing-contractshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#resolving-insolvencyhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#resolving-insolvencyhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#resolving-insolvencyhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#enforcing-contractshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#trading-across-bordershttp://www.doingbusiness.org/data/exploreeconomies/latvia/#paying-taxeshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#protecting-investorshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#getting-credithttp://www.doingbusiness.org/data/exploreeconomies/latvia/#registering-propertyhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#getting-electricityhttp://www.doingbusiness.org/data/exploreeconomies/latvia/#dealing-with-construction-permitshttp://www.doingbusiness.org/data/exploreeconomies/latvia/#starting-a-business


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Latvia is included in top 10 economies that improved most across 3 or more areas measured in

2010/2011 (5th

place). 4 reforms were introduces during the last year in starting a business,

getting electricity, registering property and resolving insolvency areas.

To compare, Lithuanias rank is 27, Estonias rank is 24. Ranks for European Unioun countries

ranges from 5 (Denmark) to 100 (Greece). Overall, Latvias rank is above average.

Figure 2. Ease of Doing Business Rank 2012 - EU countries

Latvia introduced several reforms during the last year, which contributed positively to the

business environment inside the country.

Starting a Business: Latvia made starting a business easier by reducing the minimum capital

requirement and introducing a common application for value added tax and company

registration.

Registering Property: Latvia made transferring property easier by allowing electronic access to

municipal tax databases that show the tax status of property, eliminating the requirement to

obtain this information in paper format.

Resolving Insolvency: Latvia adopted a new insolvency law that streamlines and expedites the

insolvency process and introduces a reorganization option for companies. The duration of

insolvency process is expected to be reduced from 3 years to approximately 1 year. Also, the

costs of the process are expected to constitute a half of the current amount.

Getting Electricity: Latvia made getting electricity faster by introducing a simplified process

for approval of external connection designs.

Based on Doing Business rankings and other measures annualAction Plan to Improve the

Business Environmentis prepared. Current active plan is for 2011 year.

Following measures are among the 31 totally included in the plan:

5 710 11

1419 21

24 27 2829 30 31

3237

4044

48 5051

5962 64

72

87

100

0

20

40

60

80

100

120

Denmark

UnitedKingdom

Ireland

Finland

Sweden

Germany

Latvia

Estonia

Lithuania

Belgium

France

Portugal

Netherlands

Austria

Slovenia

Cyprus

Spain

SlovakRepublic

Luxembourg

Hungary

Bulgaria

Poland

CzechRepublic

Romania

Italy

Greece

Ease of Doing Business Rank 2012 - EU countries


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- Introducing electronic registration system of enterprises and official electronicpublications; that would simplify registration processes as well as reduce costs related to

the paper-based publications and certificates.

- In the field of protecting investors, amendments to the Commercial Law will be preparedby September 1, 2011, in order to introduce a regulation on the rights of holding

companies and ensure transparency of transactions performed by related enterprises.- Development of step-by-step description for filling in monthly reports in the EDS (Tax

administration). Training of entrepreneurs to use the EDS would reduce the time required

to record these tax reports.

- In the field of real property it is planned to implement the one-stop shop principle inregistration of property data and corroboration of the title. Data of the National Real

Estate Cadastre Information System and of the Sate Unified Computerized Land Register

are to be updated by mutual obtaining of data without involving the owner of the real

property.

- In the field of promoting e-services, a section for entrepreneurs is planned to bedeveloped on the portal www.latvija.lv in 2011. It will contain guidance maps for the

Doing Business topics thus providing easy understandable information about the required

administrative formalities.

In general, current state of business environment in Latvia is getting friendlier to newcomers, as

state introduces measures that make it easier to start and run a business without big investments.


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Innovation

Innovation is invention application in real world goods and services. It makes peoples life

better, brings new technologies and possibilities.Innovation helps companies to get higher added

value to their products, therefore is necessary for the development of economy.

In the research Innovation Union Scoreboard 2010 published in 2011, Latvia ranked 27th out of

27 countries (Estonia14th, Lithuania25th). By the research Latvia is put into the group of

modest innovators.

Figure 3.Innovation ranks for EU countries

Innovation is measured in 3 types and 8 dimension 9total 25 indicators):

Enablers (drivers):

1. Human resources - measures the availability of a high-skilled and educated workforce2. Open, excellent and attractive research systems measures the international

competitiveness of the science base

3. Finance and support dimension measures the availability of finance for innovationprojects and the support of governments

Firm activities (efforts):

1. Research and development (R&D) and non R&D firms make in order togenerateinnovations

2. Linkages & entrepreneurship dimension measures entrepreneurial efforts andcollaboration efforts among innovating firms and also with the public sector

3. Intellectual assets dimension captures different forms of Intellectual Property Rights(IPR) generated as a throughput in the innovation process

Outputs (effects):

1. Innovators dimension measures the number of firms that have introduced innovationsonto the market or within their organizations

2. Economic effects dimension captures the economic success of innovation in employment,exports and sales due to innovation activities


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Figure 4. Innovation annual growth/performance graph for EU countries

Even though Latvia is the modest innovator among 27 countries currently, the annual growth rate

in innovation performance is greater than the average among EU countries. It is higher than the

growth rate of Lithuania and Estonia.

Table 2.Innovation annual growth/performance for EU countries

Group Growth rate Growth leaders Moderate growers Slow growers

Innovationleaders

1.6% Finland (FI),Germany (DE)

Denmark (DK),Sweden (SE)

Innovation

followers

2.6% Estonia (EE),

Slovenia (SI)

Austria (AT),

Belgium (BE),

France (FR),

Ireland (IE),

Luxembourg (Lu),

Netherlands (NL)

Cyprus (CY),

United Kingdom

(UK)

Moderate

innovators

3.5% Malta (MT),

Portugal (PT)

Czech Republic

(CZ), Greece (GR),

Hungary (Hu), Italy(IT), Poland (PL),

Slovakia (SK),

Spain (ES)

Modest

innovators

3.3% Bulgaria (BG),

Romania (RO)

Latvia (LV) Lithuania (LT)

Relative strengths are in Human resources and Finance and support. Relative weaknesses are in

Open, excellent and attractive researchsystems, Linkages & entrepreneurship and Innovators.

High growth is observed for PCT patent applications in societal challenges and Community

trademarks. A strong decline is observed forMost cited publications, Innovative SMEs


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collaborating with others and License and patent revenues from abroad. Growth performance in

Finance and support and Intellectual assets is above average. In the other dimensions it is below

average.

Figure 5. Innovation ranks for specific topics in Latvia

Nowadays, the science field has several internal problems:

- The number of scientific staff is small4,223 persons full time engaged in scientificwork in 2007. It stands for 3.8 scientists per 1,000 inhabitants in Latvia. In Europe (ES)

number was 5.4. 3,016 of those were employed ineducational institutions and 744 in state

research centers, 463 employed in theprivate sector, which is around 11 percent of total

scientific staff persons, based ondata from Central Statistical Bureau of Latvia. In

comparison, in European Union countries number of those involved in private sectors

science varies from 49 to53 percent.

- Science is a low priority in state financing.- Characteristic of doctorates. One-third of the scientists (doctorates from Latvia) work

abroad. Age structure of academic personnel is also unfavorable. In 2008,there was 3,603

science degree doctors with one-third in age group 55-64 andonly 249 younger than 34.

The research conducted among 306 (122 from districts and 184 from Riga and suburb)

enterprises by the Latvian Technological Centre identified following main obstacles for

innovation in the industry of Latvia:

- Applied science demand is low. Orientation on demand is measured by contacts withindustry. Research also showed that Latvian research institutions have networking skills.

- Research institutions have very low abilities for usage of research work results.


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- There are no stimuli to cooperate with industry. The academic system does not providemotivation for cooperation and one of obstacles might be lack of industrial experience.

To understand how these problems can be resolved, it is helpful to identify main features and

prerequisites that apply to innovative businesses in general and particularly in Latvia:

- Innovative business is closely related with academic activities of universities (researches,laboratories etc.). Most European universities are pure-science oriented, and dont

participate in business as in USA, for example. To improve the situation, business

incubators are being introduced in Latvia. Incubator process consists of idea-prototype-

business plan-company creation activities. The goal is to support innovative companies

creation, as in the first stages investments are not returned

- Business administration has to be more flexible and less formal, as it is generallyimpossible to identify business plan steps ahead of time with innovative businesses.

Detailed analysis of alternatives, long-time planning and rating makes little sense.

- Innovative businesses are related to higher risk and higher profit challenges. Higher riskmakes it higher to attract investments in the first stages of development.

- Personnel management is vital, as innovation depends on people who are designing andimplementing solutions.

- Material resources for many innovative spheres are high-cost, so cooperation withresearch institutions in necessary

- Innovative businesses have either do something no one else is doing or to do the knownthing differently (better, cheaper etc)

- Marketing should be oriented internationally for Latvia, as it is easier to find customersthat have demand for innovative goods and services, as well as the difference between the

cost and revenue will be more on behalf of the fact Latvia has cheaper labor force.

The National Reform Program of Latvia for implementation of EU 2020 strategy sets a new

objective to increase the investments of Latvia in R&D1% of the GDP in 2015, and 1.5% of

the GDP in 2020 (see Section 6.1.2). For achievement of the objective the following main policy

directions have been set:

Developing scientific activity potential; Establishing a long-term platform for cooperation between enterprises and scientists; Supporting development of innovative enterprises.

There are several programs Latvia is implementing in order to make innovation situation better:

Competence centers support. Within the framework of the competence centers,enterprises in cooperation with the scientists are going to develop new technologies and

products in sectors important to.

Technology transfer contact points at higher education institutions; Projects supported and finances by European Union;

In conclusion, it can be said that improving innovation level cannot be done in one day or year. It

requires development of technology, investments and application of new ideas. Current situationin Latvia is not something unexpected, but it definitely needs to be improved.


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Information Society

Information society is a society where creation, distribution and manipulation of information has

a significant role in economical, political and cultural life. In modern world it means leveraging

the possibilities offered by Information technologiesinternet, communications, etc.

Information society is based on

- technological base (infrastructure, software),- range of information services available- level of individual skills and knowledge.

Information technologies and their wide usage can increase the performance of individuals,

companies and economy as a whole. That is why one of significant characteristics is an

availability of internet connection (and quality) for the population and various types of how

people use given technologies.

Following graph shows that half of households in Latvia have access to broadband internet,

Lithuania and Estonia have approximately the same level.

Figure 6. Percentage of households with broadband internet connection in Latvia


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Figure 7. Broadband internet connections penetration rate and increase of penetration rate

Increase of broadband penetration rate is close to EU average and is higher than in Lithuania and

Estonia.

Figure 8.Percentage and increase of regular internet usage in Latvia

Latvia has the percentage of regular internet users very close to EU average, and the increase of

users slightly below average.

Other characteristic that is important for economy and businesses that use information

technologies is the level of internet usage for commercial activities. If people are willing to order

goods online, businesses can invest their money into these technologies and make profit. If

people are not sure, do not trust online transactions etc, it is much harder for the enterprises.


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Figure 9. Percentage of internet users that have ordered goods or services over the internet for private usewithin the year

For Latvia, the percentage is below 30%, but the increase over 3 years is more than 2/3, so the e-

commerce development is quite fast relative to other countries.

Some people just use technology to find information, and then do the actual purchases the

traditional way. For this group it is very important to give precise and up to date information to

gain them as the customers.

Figure 10. Percentage of internet users in the last 3 months who have used the internet to find information

about goods and services and behavior related to buying

Percentage of users that use internet to search for information in Latvia is quite high and

comparable with average EU level. At the same time percentage of users who use internet to buy

goods, is still not high enough comparing to the more developed countries.

General information society situation in Latvia is still in development, but making significantimprovements.


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- Broadband internet services are widely available (except rural areas); Digital and cableTV marked is evident;

- eGovernment services are being improved and increasingly used by businesses;- National Library of Latvia started making digital copies of material since 2009, and is

developing eServices to provide remote access to materials

-

Rates of internet use are close to EU average. Looking for information activities rate isclose to EU average. Online newspapers reading, internet banking and self-created

content uploading services are above EU average. The use of eCommerce by individuals

is still underdeveloped and below average.


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References

1. Business Environment in Europe,http://europa.eu/legislation_summaries/enterprise/business_environment/index_en.htm

(01.11.2011).

2. 2012 Doing Business report,http://www.doingbusiness.org/reports/global-reports/doing-business-2012(01.11.2011).

3. Activities to Improve the Business Environment for 2011(Decree No. 54 of the Cabinetof Ministers on February 10, 2011)

4. Innovation Union Scoreboard (IUS) 2010,http://ec.europa.eu/research/innovation-union/pdf/iu-scoreboard-2010_en.pdf(30.10.2011)

5. Lukjanska R. (2010), Knowledge innovation hindering factors at Latvian enterprises,Library Review, Vol. 60 No. 1, pp 68-78.

6. Hilkevics S., Stefenberga D. (2010), Business Functions Approach To Innovative AndNon-innovative Business Comparison In Latvia,Perspectives of Innovations,

Economics & Business, Vol. 5 No. 2, pp 14-16.

7. Europes Digital Competitiveness Report 2010,http://ec.europa.eu/information_society/digital-agenda/documents/edcr.pdf(30.10.2011).

8. European Commission Information Society,http://ec.europa.eu/information_society/index_en.htm(30.10.2011)

9. European Commission Innovation Union,http://ec.europa.eu/research/innovation-union/index_en.cfm

10.Eurostat statistics,http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=isoc_ec_ibuy&lang=en

(01.11.2011)
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